Why Markets Have Cycles
Homes don't sit on the market longer because of pictures or imaginary valuation or any confirmation bias. Homes sit on the market longer when nobody wants them. The thing to figure out is why nobody wants them. The best way to figure this out is to look at the economics of the market the home is in.
The math is simple: divide the price of the home by the median household income in the area. Ideally, you are looking to see a number very close to 2.9 below. As inflation and speculative investors drive home prices up overbidding on lottery ticket properties, you will frequently see values above 3, and in communities where people live in a total fantasy world, you will see values above 4. When values get above 4, the price of that property is completely decoupled from reality; no one but an investor with money to waste can afford it, and then it won't rent because still no one can afford it.
When markets diverge into insanity, the game changes from coffee mixer data to macroeconomics; it becomes a big boy's game really fast. Now, to see what is happening in that market, you need to look at real job growth, real dollar values in the area, and how stubborn the owners of these properties are. Not many people who find themselves in a situation where they're not going to be a millionaire after all want to sell their investment for a $200,000 loss. If employment, wages, and other income in the area are not rapidly increasing to lower that value of 4 back to something intelligent, that property will never be a good investment.
The cold hard truth is 99% of the time real estate fails to be a good investment unless you are strictly paying cash and have the financial, business, economics acumen to truly gain an advantage over the rest of the market.
The golden rule for speculative investing is wherever they go, go somewhere else. A lot of people are learning the hard way about Florida because of this very thing.
Now, why do markets have cycles?
Because home prices in an area usually match the income in that area, until crazy people who do third-grade level math show up and make all the $150,000 homes sit on the market for 5 months for $445,000. That's the "up" part of the cycle. Eventually, those home prices fall back down to income levels. That's the "down" of the cycle. Inevitably, a few years pass, and the same people do the same thing again. It's about a 10 - 12 year cycle.
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My name is Christopher Woodward. I'm happy to connect with people who value real insight.